There is a growing interest today among investors in investing in individual securities rather than mutual funds. The professional money managers who advise these investors require tools that allow trading decisions to be made in response to rapidly changing market conditions. Tax considerations often play a major role in choosing which lots of stock to buy or sell in a particular transaction. For example, the length of time a lot of stock is held affects the net gain or loss from a transaction because the tax laws distinguish between long-term investments (e.g., stocks held for more than a year) and short term investments (e.g., stocks held for a year or less). Individual investors may wish not to sell a stock solely on the basis of unrealized gains if for example, it is close to rolling over from short term to long term. They may wish to delay the sale in order to take advantage of lower long-term tax rates. In terms of transaction timing, the investor may also wish to avoid the tax rules on so called “wash sales”, transactions in which the same security is sold at a loss and bought, either before or after the sale, within a 30 day period.
Trading tools that have been developed to date for investors, and money managers, have focused on the analysis of trading scenarios for individual investors. One such tool, SAMS (Single Account Multiple Security) a product of CheckFree Investment Services, Inc. (the assignee of the present application) allows the user to view pertinent tax information and interactively liquidate or add new positions. The Windows display of the SAMS product is designed to aid portfolio managers in trading securities, a single investment account at a time in a tax efficient manner. Within an account, SAMS treats each tax lot of securities individually.
Briefly, SAMS provides only a single screen to assist the user, incorporating the following items:
A Portfolio Summary that provides an overall view of an investor's account by asset class (e.g., cash or cash equivalent), fixed income, common stock) and gains and losses, both long term and year to date;
A Portfolio Holdings (Standard) display that provides a detailed holdings report showing each tax lot of securities identified by holding period (including the number of days to roll-over), and indicating the unrealized gain or loss for each tax lot based on current market price;
A Portfolio Holdings (Tax Calcs) display similar to the standard portfolio holdings display described above, but with the tax liability and tax adjusted value shown for each tax lot of securities with a long or short term gain (no tax rate applied to losses); and
A Tax Adjustor that summarizes all the holdings in an account, and allows the after tax effect of trades to be interactively evaluated, calculating changed values of individual holdings and the overall account, as securities are liquidated or added. Trading of individual lots can be based on a number of shares to be traded, dollar value of the trade, or percentage of portfolio.
SAMS does not automatically compute a trading proposal for a given account based on a set of rules. Rather it is a calculating tool that allows the user to interactively develop an advantageous scenario for the investors based on tax consequences and other investor objectives.
It must be emphasized that SAMS and similar tools are designed to aid in formulating trading scenarios for individual accounts, one at a time, each across the multiple tax lots of multiple securities held in the account being evaluated. However, for money managers that are responsible for multiple accounts, numbering perhaps in the tens of thousands, there is also a need for a tool that can be used to develop trading proposals across the plurality of accounts for a single security. Often the desirability of trading a particular security is driven by rapidly changing market conditions, and trade decisions must be made quickly. In such situations a tool like SAMS could be applied to each account individually to determine the most beneficial trading proposal for each in the security in question. But such a serial approach could take hours or even days for a large client base. By that time the circumstance that originally motivated the desire to trade may have already changed. Instead, what is needed is a tool that can rapidly formulate trading proposals in a single security for a large number of accounts simultaneously taking into account the tax situation and objectives of each investor.
Objectives
Therefore, it is an objective of the present invention to provide a system for generating trading proposals for tax lots of a single security across multiple investor accounts, optimized to take into account the tax consequences of each trade.
It is another object of the present invention to provide a system for generating trading proposals for tax lots of a single security across multiple investor accounts, that allows screening tax lots according to selected trading objectives for all selected accounts.
It is yet a further objective of the present invention to provide a system for generating trading proposals for tax lots of a single security across multiple investors, that take into account time sensitive tax events such as “roll-overs” from short term to long term, and “wash” sales.
It is yet a further objective of the present invention to provide a system for generating tracking proposals for tax lots of a single security across multiple investors that allows screening of tax lots according to selected objectives of individual accounts.
The above stated objectives, as well as other objectives, features and advantages, of the present invention will become readily apparent from the following detailed description, which is to be read in conjunction with the appended drawings.